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Fix or fail

the year 2018 is set to be yet another big year for the South African electricity utility, which has been in the headlines for all the wrong reasons for more than ten years now.

Dealing with the fiscal and economic risks posed by Eskom’s current lack of sustainability has to be a top priority. And, because the State-owned utility’s financial distress is so tightly intertwined with its governance failings, an overhaul of the board is the unavoidable first step to recovery.

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Sadly, the appointments made in December did little to raise confidence levels, while the reappointment of key executives, following sham disciplinary hearings, reinforced the notion of a State-owned company impervious to much-needed reform and deaf to criticism. Both developments are likely to delay any genuine progress towards proactively tackling the existential threats to the business. Instead, the leadership team is likely to remain reactive, distracted and defensive.

Society’s lack of confidence in the current leadership was on public display during the recent revenue-application hearings. Indeed, the spectre of inefficiency, maladministration and corruption made the regulator’s job of rejecting Eskom’s application for a 19.9% tariff hike a relatively easy one, with just 5.23% approved for 2018/19.

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The same atmosphere of mistrust will, no doubt, hang heavily over any approach to potential investors, to which Eskom will now turn in a bid to close the gaping hole in its finances. Should this approach fail (a strong possibility), the Eskom leadership will then be forced to make the humiliating trek to the National Treasury, in Pretoria, with begging bowl firmly in hand. The problem is that the cupboard is bare and any fresh bail-out will cause unprecedented pain, as expenditure is trimmed elsewhere to stabilise an entity perceived as being too big and important to fail.

Given society’s general frustration with the state of the utility, there is arguably a window of opportunity to begin initiating the type of far-reaching restructuring that will make Eskom fit for the future. The current vertically integrated model will become less and less relevant in a context where the cheapest sources of generation are no longer large, centralised coal-fired plants. In future, electricity supply will be far more decentralised and will involve many more participants. South Africa has to find a model that is accommodative of these trends and takes full advantage of its formidable renewable-energy resources.

It’s a case of either fixing Eskom now, or allowing it to be restructured by default in the not-too-distant future. Fixing the utility, though, will require credible, far-sighted and undistracted leadership. Sadly, that’s not what we have right at this moment. But who knows what tomorrow may bring?